Toomey Lays the Groundwork for Stablecoin Legislation
Congress Must Not Stifle Innovation or Undermine U.S. Competitiveness
Washington, D.C. – In his opening statement at today’s U.S. Senate Banking Committee hearing, Ranking Member Pat Toomey (R-Pa.) said Congress should work on legislation surrounding stablecoins, but be careful not to stifle innovation in an evolving digital economy or undermine our own country’s competitiveness.
During
the hearing, Senator Toomey also laid out a set of guiding principles to
influence Congress’s work on a stablecoin legislative framework. To read his
full set of principles, click
here.
Ranking
Member Toomey’s remarks, as prepared for delivery:
Thank
you, Mr. Chairman.
Stablecoins
are a central component of the cryptocurrency ecosystem, which is itself at the
vanguard of the tokenization of assets.
Stablecoins
can speed up payments, especially cross-border transfers, reduce costs,
including remittances, and help combat money laundering and terrorist financing
through an immutable and transparent transaction record.
Stablecoins
can also be programmed and made interoperable with other currencies, creating
efficiencies to improve access to financial services for more Americans.
But
unlike volatile cryptocurrencies like Bitcoin, stablecoins don’t fluctuate in
their dollar price.
In
today’s hearing, we will focus on stablecoins designed to maintain a 1-to-1
value relative to the U.S. Dollar, meaning one stablecoin is meant to always
equal one dollar.
Over
the past year, the stablecoin market has exploded. As one of our witnesses,
Dante Disparte, will explain, stablecoins are beginning to be used for small
business payments and international remittances. While traditional payment
systems can be expensive and take several days to settle, transferring funds
via stablecoins is low-cost and nearly instantaneous.
Given
that stablecoins disrupt the status quo, they’ve naturally drawn skepticism
from incumbent industries and regulators. Last month, the President’s Working
Group on Financial Markets, or PWG, issued a report recommending that Congress
pass legislation to establish a federal regulatory framework for stablecoins.
In their report, the Treasury Department and others expressed their worries
about consumer protection and financial stability with stablecoins.
Although
the report did little to highlight the potential benefits of stablecoins, I was
encouraged the report acknowledged that responsibility for clarifying whether,
and to what extent, federal agencies have jurisdiction over stablecoins rests
with Congress. I am open to working with the administration and my Democrat
colleagues on this front.
But
whatever Congress does, let’s be sure that we don’t stifle innovation in an
evolving digital economy or undermine our own country’s competitiveness. Let’s
have the humility to recognize that many of our views about how financial
services are delivered and how investments work are quickly becoming outdated.
This
morning, I’m releasing a set of guiding principles that I think should
influence our work on a stablecoin legislative framework.
Innovation
These
principles recognize that stablecoins are a very important innovation, and they
introduce new capabilities into money that did not previously exist. In
addition to their ease of use and reduced fees associated with their transfer,
stablecoins can improve the privacy and security of our transactions. They also
introduce the concept of money programmability, or smart contracts, which allow
automated transactions based on a sequence of verifiable events.
In
recognition of the potential of these new capabilities, any regulation should
be narrowly tailored and designed to do no harm. At the same time, sensible
regulatory standards may help to protect against key risks, such as redemption
or run risk. These principles take a different approach than the PWG report.
Options
for Stablecoin Issuers
For
example, the PWG report recommends that all stablecoin issuers must be insured
depository institutions. There are three reasons I disagree with that
recommendation.
First,
stablecoin issuers have different business models than banks. They do not
provide the same services as banks and do not present the same risks.
As
one of today’s witnesses, Jai Massari has observed, stablecoin providers do not
engage in taking deposits and making loans like banks do. Because of these
important differences, subjecting all stablecoin providers to the full suite of
bank rules and regulations meant to address maturity transformation is not
appropriately tailored to the potential risks.
Second,
requiring all stablecoin issuers to become banks would stifle innovation. We
know that a tremendous amount of innovation occurs outside of the banking
system, including by technology companies. It is unlikely that much of this
development could happen within the banking system because of onerous
regulations, which create a difficult environment for innovation. Allowing
entrepreneurs to innovate with digital assets like stablecoins will promote
greater competition and deliver better results for consumers.
Finally,
the regulation of payments activities should create an equal playing field.
Great innovators like PayPal, Venmo, and Apple Pay are already subject to a
state-by-state licensing regime, as well as registration with a federal
regulator.
Recognizing
the range of different business models, there should be at least three options
for stablecoin providers: operate under a conventional bank charter; comply
with or acquire a special-purpose banking charter designed for stablecoin
providers, which would be designed in accordance with legislation; or register
as a money transmitter under the existing state regime and as a money services
business with FinCEN at the federal level.
This
optionality would match each stablecoin provider with the regulatory framework
most appropriate to the business model.
Requirements
for All Stablecoin Issuers
Regardless
of the charter or license they pursue, all stablecoin providers should meet
certain minimum requirements. For example, they should clearly disclose what assets
back the stablecoin, as well as give clear redemption policies and subject
themselves to periodic audits.
These
requirements would ensure that consumers have sufficient information about
which stablecoin they use. It might also be appropriate to set minimum reserve
requirements and attestations as well.
In
addition, legislation should stipulate that non-interest-bearing stablecoins
are not necessarily securities and shouldn’t automatically be regulated as
such.
This
framework should protect the privacy, security, and confidentiality of
individuals using stablecoins, allowing customers to opt out of sharing
personal information with third parties.
Finally,
anti-money laundering and other requirements regarding financial surveillance
under the Bank Secrecy Act should be modernized for all financial institutions
subject to them, given the emergence of stablecoins, cryptocurrencies, and
other new technologies, including artificial intelligence.
The
emergence of stablecoins represents to me the latest development in the ongoing
evolution of money. I stand ready to work on this issue and do so in a manner
that doesn’t discourage innovation or competition moving forward.
I
look forward to hearing from your witnesses and yield back.
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